TMI Blog1967 (11) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... the company for a continuous period of six months. By article 46 it was provided that a member of the company who owned 10 shares of the company in his own name or in the name of the firm of which he was a proprietor or partner may be elected a director of the company. By article 51, until otherwise fixed, the quorum in the meetings of directors was to be four. In the years 1949 and 1950 the company was carrying on business principally in futures in gur. The method of carrying on business in futures was explained as follows, by the parties to the dispute in an agreed statement submitted before the Company Judge: The transactions for sale and purchase of gur have to be in the units called ' Bijaks' of 100 maunds. The buyer and the seller who are members of the company negotiate transactions of sale and purchase in gur through their respective brokers and then approach the company. The company enters into two independent contracts whereby the company is the puchaser from one and is the seller to the other at rates agreed upon between the seller and the buyer. The seller has therefore to sell to the company a specified quantity and the buyer agrees to purchase t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 17-8-0 per maund. The sellers were required to deposit margin money between the prices prevailing on that date and the maximum rate fixed by the company. The appellants deposited in respect of their transactions ₹ 5,26,996-14-0 as margin money. They claimed also to have deposited amounts totalling ₹ 7 lakhs odd in respect of their benami transactions. In exercise of the powers conferred by section 3 of the Essential Supplies (Temporary Powers) Act, 1946 (24 of 1946), the Government of India issued a notification on February 15, 1950, amending the Sugar (Futures Options) Prohibition Order, 1949, and made it applicable to futures and options in gur. By that Order entry into transactions in futures after the appointed day was prohibited. On the same day the board of directors of the company held a meeting and resolved that the rates of gur which prevailed at the close of the market on February 14, 1950, viz., ₹ 17-6-0 per maund, be fixed for settlement of the contracts of Phagun delivery. It was recited in the resolution that five persons including Lala Mohan Lal, partner of the appellants, were present at the meeting on special invitation. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han Lal J. dismissing the petitions were confirmed by the High Court of Allahabad in its appellate jurisdiction. With certificates granted by the High Court, these two appeals have been preferred by the appellants and their partner, Mohan Lal. The High Court held that by the notification dated February 15, 1950, the outstanding transactions of futures in gur did not become void; that in fixing the rate of settlement by resolution dated February 15, 1950, and settling the transactions with the other contracting parties at that rate the directors acted prudently and in the interests of the company and of the shareholders, and in making payments to the parties on the basis of a settlement at that rate the directors did not commit any fraudulent act or misapply the funds of the company; that the case of the appellants that apart from the transactions entered into by them in their firm name, they had entered into other transactions benami in the names of other firms, and that the company had mala fide settled those transactions with those other firms was not proved; and that the board of directors was and remained properly constituted at all material times and no provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i-mandi in any sugar. 3. On or after the appointed day no person shall- (a)save with the permission of the Central Government in this behalf or of an officer authorised by the Central Government in this behalf, enter into any futures in sugar or gur, or pay or receive or agree to pay or receive any margin in connection with any such futures; (b)enter into any option in sugar or gur ; 4. Any option in sugar or gur entered into before the appointed day and remaining to be performed whether wholly or in part shall be void within the meaning of the Indian Contract Act, 1872, and shall not be enforceable by law . By clause 3( a ) all persons are prohibited, save with the permission of the Central Government in that behalf from entering into futures in sugar or gur : the clause also prohibits receipt or payment of, or agreement to pay or receive any margin in connection with any such futures. The clause in terms operates prospectively. Clause 3( b ) prohibits options in gur and sugar, and clause 4 expressly invalidates options in sugar and gur entered into before the appointed day and remaining to be performed whether wholly or in part. The contrast between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 91B of the Indian Companies Act, 1913, and the company could not retain money paid in pursuance of unauthorised transactions. It was resolved unanimously in the meeting of the board of directors convened on March 14, 1949, that forward transactions in gur for Phagun Sudi 15, Samvat 2006, i.e., March 4, 1950, may be started according to the rules laid down therein. It was said that the resolution which authorised transactions of futures in gur in the manner in which the company was carrying on its business entailed disqualification of the directors and as the directors were disqualified there was no quorum and no proper resolution and therefore all transactions entered into and any payments made pursuant to that resolution were invalid and the company was bound to refund the amounts paid by the appellants from time to time. The company had 11 directors : out of these 9 directors were carrying on business with the company. It appears that at the meeting dated March 14, 1949, all the directors present were those who carried on business in futures in gur with the company, and did after March 14, 1949, carry on that business. Under the Indian Companies Act, 1913, as orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. It appears that the directors were oblivious of the requirements of section 86F and of the provisions of section 86-I and section 91B, and the modus operandi of the business continued to remain the same as it was previously. On the terms of section 86F (1) all directors of the company were prohibited, unless the directors consented thereto, from entering into contracts for the sale, purchase or supply of goods and materials with the company. On behalf of the company it was urged that by the resolution dated March 14, 1949, the directors resolved generally to sanction all transactions of the directors for the sale and purchase in commodities in which the company carried on business, and on that account, notwithstanding the prohibition contained in section 86F, the directors did not vacate their office. Counsel for the appellants urged that the consent of the directors contemplated by section 86F is consent in respect of each specific contract to be entered into and no general consent can be given by the directors authorising a director or directors of the company to sell, purchase or supply goods and materials to the company. Such a general resolution without considering the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not inconsistent with any other express provision in the memorandum or the articles of association. It, therefore, follows that regulation 94 must be deemed to be incorporated in the articles of association of the company. That regulation provided : All acts done by any meeting of the directors or of a committee of directors, or by any person acting as a director, shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such directors or persons acting as aforesaid or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a director . There is no evidence that the directors were aware of the disqualification which would be incurred by entering into contracts of sale or purchase or supply of goods with the company without the express sanction of the directors. By the subsequent discovery that they had incurred disqualification, because they had entered into contract with the company for sale or purchase or supply of goods, the resolution passed by them is not rendered invalid. It is, in the view we have taken, unnecessary to decide whether section 86 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 12-13-9 per maund, and those transactions in futures were not invalidated by the notification issued by the Government. But since no reverse transaction to protect the company against loss, if a member failed to pay margin, was possible, the only practical way out was to provide for settling the outstanding transactions. This the board of directors did by taking the rate which was prevailing in the evening of February 14, 1950, as the rate of settlement of all the outstanding transactions. The resolution, however, did not put an end to the outstanding contracts as on February 15, 1950 : the resolution merely fixed the rate at which the transactions were to be settled on the due date, the possibility of any fresh transactions in futures so long as the Order remained in force being completely ruled out. It may be noticed that the appellants' representative was present at the meeting, and he was apparently heard. Whether or not he agreed to the passing of the resolution is immaterial. But we are unable to hold that the resolution was passed with a view to benefit the directors: it appears that the resolution was passed with a view to protect the interests of the company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addressed a letter informing the appellants that in the interests and for the benefit of the trade, the board of directors has passed a resolution on February 15, 1950, to settle the outstanding transactions at the rate prevailing in the market on February 14, 1950. That resolution, it was stated, was for the benefit of the appellants, but if the appellants wanted to deliver the goods, they should intimate the date and place on which they were prepared to give delivery of goods according to the outstanding contracts on Phagun Sudi 15, Samwat 2006, in terms of the rules and bye-laws of the company. The appellants denied having received this letter. But we are unable to accept that denial. On March 1, 1950, the appellants wrote a letter stating that because of the notification issued by the Central Government the performance of the contracts had become impossible, and that the company was liable to refund all the amounts deposited with interest thereon, and that the illegal settlement dated February 15, 1950, amounted to repudiation of the contracts by the company and those contracts stood rescinded. The appellants apparently insisted that the transactions became impossible of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company was unable to pay its debts. Under section 162 of the Indian Companies Act, the court may make an order for winding up a company if the court is of the opinion that it is just and equitable that the company be wound up. In making an order for winding up on the ground that it is just and equitable that a company should be wound up, the court will consider the interests of the shareholders as well as of the creditors. Substratum of the company is said to have disappeared when the object for which it was incorporated has substantially failed, or when it is impossible to carry on the business of the company except at a loss, or the existing and possible assets are insufficient to meet the existing liabilities. In the present case the object for which the company was incorporated has not substantially failed, and it cannot be said that the company could not carry on its business except at a loss, nor that its assets were insufficient to meet its liabilities. On the view we have taken, there were no creditors to whom debts were payable by the company. The appellants had, it is true, filed suits against the company in respect of certain gur transactions on the footing that they ..... 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